Citigroup, one of the world’s largest banks, has been an ETF service provider for years and has even seen its name on exchange-traded products as a subadvisor in the past.
However, Citi’s presence in the ETF landscape is not as apparent as other large banks that also swim in the ETF pool. The firm is hoping to change that, and Andrew Jamieson is leading that effort. He is the managing director and global head of ETF product at Citi, and is leading the firm’s “ETF Initiative” to carve out a bigger chunk in the ETF service industry. Jamieson spoke with ETF.com to explain the bigger role Citi wants to play in the industry.
ETF.com: Where has Citi been in the ETF ecosystem? Where is it now? And what’s your goal?
Andrew Jamieson: About three years ago, our internal business advisory group put out an annual seminal report addressing the macro themes as it pertained to the asset management community and the investment community—what they saw as the irreversible trend of passive and the adoption of ETFs as that vehicle of choice.
We undertook a real deep dive in terms of identifying where we touch the ETF life cycle. What part did we play within the ETF ecosystem? What did we do well, what did we not do well? What could we do? What shouldn't we do? And we really put this together in what we termed at the time our “ETF initiative.”
It was really to try and understand whether we should invest, whether we should retrench, or what was our case within this growing opportunity that ETFs would present.
At the conclusion, we determined that we had a number of compelling reasons why we should invest further and develop our offering. We felt that we had a very specific, unique selling point, and that was the fact that we touched every aspect of the ETF life cycle.
We're involved in index creation, research and content. We put our weekly ETF research on 40-Act funds in North America for fixed income exposure, for equity exposure. We do it in Europe. We do it in Asia and Australia. We trade ETFs. We distribute and sell ETFs. We market make for ETFs. We underwrite ETFs for some big exposures, whether it be inverse or levered. We write derivatives on ETFs as an access vehicle. We lend, we borrow. We use ETFs as collateral. And then we do the full fleet of traditional asset servicing—ETF custody, administration, issuer services.
We touch every aspect of the product from cradle to grave. The ETF industry is concentrated, whether it be the big four issuers, the specialist independent liquidity provider clearers, those liquidity providers themselves, the custodians that serve the ETF industry. It all tended to be people that had a very narrow focus. And they were very good at what they did, but they weren't able to offer the economies of scale.
We felt we had a compelling offering with the ability to think of our relationship in that virtual end-to-end capacity, and therefore offer a degree of one-stop shopping for the issuer and investor community.
ETF.com: Citi has subadvised exchange-traded products. What about launching Citi’s own ETFs?
Jamieson: We're not an issuer, so that was a very strong selling point in itself, because the very few organizations that are global and across the spectrum of services like us, every competitor in that space—of which there are a very, very few in number—would have their own ETF business as an issuer or would be an asset manager.
Therefore, we can work really agnostically with issuers—new and established, large and small, active and passive—and really do so without that internal conflict of interest. They know that they can work with us very candidly around product generation, around pipeline and distribution, and we can help partners to try and get these products off the ground and successfully distributed.
ETF.com: Tell me about your U.S. operations.
Jamieson: We're hubbed out of New York with Citibank down in Tribeca. We’ve broken out our ETF trading by asset class. We’ve dedicated commodity ETF traders, fixed income ETF traders and equity ETF traders. They sit within the respective asset classes, and that therefore naturally aligns much better with the distribution sales force.
So fixed income ETFs are being serviced by credit salespeople, rates salespeople, muni salespeople, and they find that that works much better than trying to sell a product that sits on a different floor and sits in a different division. Credit salespeople don't know what a delta one trader is, and aren't necessarily connected to the same client base.
ETF.com: What challenges are you facing?
Jamieson: One of the challenges that we have is, how do you create a cohesive and complementary vision and strategy across all of these individual businesses centered around ETFs? That's essentially what we've done. And in that sense, what we're doing is empowering our existing sales force, to equip them with a better understanding of ETFs, and to therefore leverage the existing Citi infrastructure to maximize the outcome.
We have significant natural advantages. We're a very large, global, U.S. investment banking franchise, and we touch thousands of institutional clients. Those same clients are trading ETFs in ever-increasing numbers, ensuring that each of our traditional sales and relationship managers are aware of our ETF initiative, are aware of our ETF capabilities, and are putting that into the dialogue when they're speaking to clients.
We might be stumbling across clients on a daily basis that are well-known to the firm, but to whom we just haven't traditionally sold ETFs in the past. This is not a new business, and maybe not necessarily well-known, but that is changing as we bring focus to our ETF efforts.
ETF.com: Where do you think ETFs are going in terms of disruption?
Jamieson: We see retail in Europe as a big opportunity versus the institutional market. I think in the U.S. it could go the other way, particularly in fixed income.
Hopefully we have seen the end of the continual finger-pointing, trying to blame ETFs for everything and anything that goes wrong.
Part of our messaging to clients is that, if you're still one of the late adopters of fixed income ETFs and how it interplays with the growing indexation and portfolio trading in fixed income, then this is a big opportunity for you.
One thing we haven't touched on is custody. We see that as a big opportunity for us. There have been dominant players in the market, and we're putting in a lot of investment to build out our ETF custody and administration offering.
We see that as a big opportunity. And that fits nicely into the new and evolving active opportunity with new semitransparent models, which will bring firms to the ETF market that have either been hesitant or resistant, who saw this as a passive-only tool.
We're very excited about the various models and how they're evolving, whether it be the Blue Tractor, the Precidian, the Fidelity, the T. Rowe Price, the Natixis or other models that may come to fruition. It will be interesting to see how that will evolve and how we’ll see this add yet more diversification and, to some degree, complexity around how the ETF ecosystem will work.
ETF.com: I'm sure you hear, “Andrew, I’d like to start an ETF” all the time. How do you handle that?
Jamieson: One of the challenges we faced in thinking about how we're going to operate our business is, how can we disrupt the current model? I would arguably say the traditional bank/dealer model is very reactive as opposed to proactive.
One of our conscious decisions was to act very much more in an advisory capacity. And I use that in the loosest sense and the broadest sense insomuch as we’re precisely the type of organization that can help plan, think through and war-game all the potential opportunities as to whether you should or should not launch an ETF, and perhaps launch a different type of fund structure, and how we can help develop and service every aspect of that product offering.
We aren’t launching products ourselves, so we can help look dispassionately and say to a client, “We think this would be a good opportunity. Or we think actually that space is too crowded; perhaps you should consider this, that or other.” We think that can be invaluable. We have good, credible examples where we've worked with issuers both large and small to help bring new, exciting products to market that have become very successful.
We helped brainstorm around the idea and the construction, we've helped seed and launch products, and we've helped distribute through our institutional sales force to get the product to critical mass and to get the product very relevant within the particular category that it's been launched in.
Contact Drew Voros at [email protected]